Building a new home in Hastings gives you control over design and layout, but securing construction finance works differently to a standard home loan.
Lenders assess construction loan applications with extra layers of scrutiny because funds are released progressively as the build advances, not all at once. You'll need to demonstrate that the project is well planned, the builder is capable, and you can service the loan throughout the build phase when repayments may differ from the final structure. Understanding what lenders require before you apply saves time and prevents delays once the build is ready to start.
Why Construction Finance Differs from Standard Home Loans
Construction finance is released in stages rather than a single lump sum. Lenders only charge interest on the amount drawn down at each stage, which reduces your repayment burden during the build. However, this structure introduces risk for the lender because the security, your new home, doesn't exist yet. They need confidence that the project will be completed to a standard that matches the loan amount.
Most lenders require a fixed price building contract with a registered builder, council approval for the plans, and evidence that the land is suitable for construction. Without these elements in place, your application won't progress.
What Lenders Require Before Approval
You'll need a fixed price building contract with a registered builder before most lenders will assess your application. This contract should detail the scope of work, the agreed price, and the progress payment schedule. Lenders want certainty that the build cost won't blow out halfway through the project.
Council approval is also mandatory. Your development application must be approved, and all conditions satisfied, before the loan can be drawn. Lenders will request a copy of the approved plans and the building permit.
The land itself must be suitable for construction. If you already own the land, lenders will want a recent valuation. If you're purchasing land as part of a land and construction package, they'll assess whether the combined loan amount is appropriate for the finished property's expected value.
How the Progress Payment Schedule Works
Funds are released according to a progress payment schedule that aligns with construction milestones. Typical stages include base stage, frame stage, lock-up stage, fixing stage, and completion. Each release is triggered by a progress inspection, which the lender arranges to confirm that the work has been completed to the required standard.
Consider a buyer in Hastings building a four-bedroom home on a cleared block near the foreshore. The fixed price building contract is $450,000, and the land was purchased for $280,000. The lender approves the combined loan amount and sets up a progressive drawdown structure. At base stage, the builder requests $90,000. The lender sends an inspector to confirm the slab is complete, then releases the funds directly to the builder. This process repeats at each milestone until the home is finished.
You'll pay a Progressive Drawing Fee each time the lender conducts an inspection and releases funds. This fee typically ranges from $300 to $500 per drawdown, depending on the lender. Some lenders cap the number of drawdowns, so if your builder requests more stages than allowed, you may need to negotiate the payment schedule.
Interest-Only Repayments During the Build
Most construction loans offer interest-only repayment options during the build phase. You only pay interest on the amount drawn down, which keeps your repayments lower while the house is incomplete. Once construction is finished, the loan converts to a standard principal and interest home loan, or you can choose to refinance at that point.
If you're living in rental accommodation while building, this structure helps manage cash flow. You're covering rent and loan repayments simultaneously, so minimising the loan repayment during construction can make a significant difference to your budget.
Owner Builder Finance and How It Differs
If you're planning to act as an owner builder, expect stricter lending criteria. Most lenders either won't offer owner builder finance or will require a larger deposit, often 20% or more. They'll also want evidence of your building experience, qualifications, and a detailed cost breakdown for every stage of the project.
Owner builder applications take longer to assess because the lender needs to verify that you can manage tradespeople, order materials on schedule, and complete the project without a registered builder overseeing the work. You'll need to provide quotes from plumbers, electricians, and other sub-contractors, along with a timeline that demonstrates you can deliver the project within a reasonable period.
Deposit and Genuine Savings Requirements
Lenders typically require a deposit of at least 10% of the total project cost, which includes both the land and the building contract. If you're applying with a deposit below 20%, you'll also need to demonstrate genuine savings, funds you've saved over at least three months, rather than a gift or windfall.
The total project cost is calculated as the purchase price of the land plus the building contract price, plus any additional costs like landscaping, driveways, or fencing that aren't covered in the fixed price contract. Make sure your deposit calculation accounts for the full scope, not just the land or the build in isolation. For those new to property finance, understanding your borrowing capacity before applying helps set realistic expectations for what you can afford.
Timeframes for Settlement and Commencing the Build
Most construction loan approvals require you to commence building within a set period from the approval date, often six to twelve months. If you delay beyond that window, the lender may reassess the application or withdraw approval entirely, especially if interest rates or property values have shifted.
If you're buying land and arranging construction finance at the same time, you'll need to settle on the land before the construction loan is fully activated. Some lenders allow you to settle on the land using the construction loan facility, then hold the remaining funds for progressive drawdown. Others require a separate land loan that is later rolled into the construction facility. Clarify the structure with your lender before committing to a land purchase.
For Hastings buyers purchasing house and land packages from a developer, the land component may settle first, with the build commencing shortly after. Developers often work with preferred builders who have streamlined approval processes with specific lenders, which can speed up the application.
What Happens If the Build Is Delayed
Delays happen. Weather, supply chain issues, or builder availability can push out your completion date. Most construction loans include a buffer period, but if the build extends beyond the agreed timeframe, you may incur additional interest charges or extension fees.
If your builder goes into administration or fails to complete the work, your lender's insurance may cover the shortfall, but this depends on the builder being registered and insured at the time the contract was signed. This is one reason lenders insist on registered builders rather than informal arrangements.
Choosing Between a Fixed Price Contract and Cost Plus
A fixed price building contract locks in the total cost, which lenders prefer because it removes uncertainty. A cost plus contract, where you pay the builder's costs plus a margin, introduces risk because the final price isn't confirmed until the build is complete. Most mainstream lenders won't approve cost plus contracts unless you have significant equity or a large deposit.
If you're planning a custom design with high-end finishes or unique materials, a cost plus structure might be necessary, but expect fewer lender options and stricter conditions. If you're building a project home from a standard range, a fixed price contract is almost always the better choice for loan approval.
If you're planning to build in Hastings and want to discuss your finance structure or compare construction loan options from lenders across Australia, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What documents do I need for a construction loan application?
You'll need a fixed price building contract with a registered builder, approved council plans, a copy of your building permit, and a land valuation or purchase contract. Lenders also require proof of deposit and evidence of genuine savings if your deposit is below 20%.
How does a progress payment schedule work during construction?
Funds are released at key milestones such as base, frame, lock-up, fixing, and completion. The lender arranges a progress inspection at each stage to confirm the work is complete before releasing payment to the builder.
Can I act as an owner builder and still get finance?
Yes, but lending criteria are stricter. Most lenders require a larger deposit, often 20% or more, and evidence of your building experience, qualifications, and detailed cost breakdowns for every stage of the project.
What happens if my builder delays the construction?
Most construction loans include a buffer period for delays. If the build extends beyond the agreed timeframe, you may incur additional interest charges or extension fees, depending on your lender's terms.
Do I pay interest on the full loan amount during construction?
No, you only pay interest on the amount drawn down at each stage. Most construction loans offer interest-only repayments during the build, which keeps your repayments lower until the home is complete.
